How to Fix TAM Analysis for Early-Stage Brands

Why is a conservative formula for a brand’s Total Addressable Market (TAM) so elusive in the world of early-stage consumer brands? Among many others, the folks who study consumer behavior just aren’t involved in these calculations. 

In a less giddy world than ours, bottoms-up formulas for a brand’s TAM would reign supreme, offering high, medium, and low projections on a maximum of a ten-year-out basis. Here are the components that bottoms-up TAM formulas should play with when looking at eight-figure early-stage growth brands (any earlier would be premature). 

  • Combined market share of ALL premium-priced offerings to date in the broader category (e.g., organic, dry-aged, and specialty meat) – what evidence would suggest the innovation could grow premium share?
  • Correlation of early relaxed ARP with growth response (does it accelerate or not?) – if aggressive price drops are required now, the power of unit pricing parity with the mainstream part of the category may be weak
  • Several competing players splitting the new segment – unless you assume general incompetence among your competition, most new segments get split up by 2-4 players, in my experience. Constant switching may occur and get revealed in a HH penetration far less than the sum of each brand’s HH penetration. 
  • % of revenue tied to consumers coming into the category (or back into it) – most category consumers have no desire to change their habits in CPG. You are much more likely to create massive growth by getting folks to come back to the category or try it out (usually on a new occasion). Note: if your category has 95% HH penetration, this may not apply. This is why I still believe that Beyond Meat’s real prize is global vegetarianism, especially in India. I would guess its $250M in annual revenue in U.S. retail relies heavily on vegetarian repeat. Yet, their strategy domestically has been to convert meat-eaters…hmmm. 
  • HH penetration growth rate – if this starts declining for the broader segment early on, it’s probably the most damning signal there is. It’s the master KPI for big brands. 

I have not bothered to put some or all of these together into a formula. Frankly, it’s a bit academic, sort of like timing your ‘exit’ one year in. But they are good things to track as you try to intuit how much upside you have or whether or not the glass ceiling is closing in.

Dr. James Richardson

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